Hank Barry, a former rock drummer and show business lawyer, stands to reap a huge windfall on his $15 million investment in lawsuit-battered Napster.

Silicon Valley and music industry execs snickered when he anted up $15 million cash six months ago from Hummer, Winblad, the venture capital fund where he was a partner.

And they thought he was crazy when he took over the CEO post at Napster. But he’s got the last laugh from his deal to join forces with his former enemy, Bertelsmann’s music group, BMG.

“He’s going to have a great vehicle and a lot of funding to make some significant deals, maybe even surpass AOL down the line,” said one music industry insider.

Barry, whose lawyerly instinct makes him more prone to settle than to fight, accepted a tentative settlement from BMG in the bitter lawsuit pitting Napster against the music industry giants.

Insiders say Bertelsmann is willing to offer Napster a development loan of up to $50 million to retool it from a renegade music pirate into a club that would sell music downloads for $2 and up – instead of allowing tunes to be swapped free to Napster followers.

Revenue could hit $500 million in the first year, some music experts projected, and the busines could become hugely profitable.

Napster is installed in 38 million active PCs – more than AOL’s 25 million paid users. Music lovers buy a half-billion CDs a year.

In exchange for the loan, Bertelsmann gets a warrant that would allow it to buy part of Napster, which could be as much 20 percent , say some industry sources.

When Barry took control of Napster, Hummer, Winblad took a significant equity stake and that could pay off big time if the other majors decide to play long with Napster-or even if they don’t.

The 19-year-old founder Shawn Fanning, who remains with the company, is said to be a minority holder but he could also see a huge windfall under a profit-making Napster.